U.S. Economy: 3 Truths About the Labor Market You Don’t Hear

By Michael Lombardi, MBA Published : January 25, 2016

The U.S. jobs market is fundamentally tormented. The job numbers look great on the surface but underneath, there are major problems.

According to the U.S. Bureau of Labor Statistics, the U.S. unemployment rate declined from 5.7% in January of 2015 to just 5.0% in December 2015. (Source: Bureau of Labor Statistics, January 8, 2016.) Impressive considering that a few years back, the unemployment rate in the U.S. economy stood at 10%.

Obviously, the mainstream took this number and ran with it. But here is the reality of the numbers…

Three Reasons Why the U.S. Labor Market Remains Broken

The chart below plots the number of employees in the retail sector and the manufacturing sector in the U.S. economy. The gray shaded area on the chart is the recession the U.S. economy experienced between 2008 and 2009.

Notice something interesting? The number of employees working in manufacturing is much less now than before. However, retail trade employees are at a record-high level. My point? Since the rebound in the labor market started in 2010, the increase in jobs has been concentrated in the low-wage-paying sectors like retail.

The next chart is of the labor participation rate in the U.S. economy; it’s a chart of the percentage of Americans who are active in the labor force (working or looking for work).

The labor force participation rate in the U.S. economy stands at its lowest level since the late 1970s! As is evident in the chart, since the Great Recession, the labor market has witnessed the steepest decline in this participation rate on record—fewer and fewer Americans are active in the labor market.

My final chart today is of the household income of families in the U.S. economy, adjusted for inflation.

As you can see from the chart, incomes are falling. For me, this is the biggest reason why I refuse to believe the labor market in the U.S. economy has recovered. If the labor market were improving, you would see higher wages and the income trend on the chart above would be the exact opposite.

Why the U.S. Jobs Market Matters?

For the U.S. economy to grow, there needs to be a strong labor market. Poor jobs market conditions create a big constraint on consumer spending—the biggest component of U.S. gross domestic product (GDP). The Federal Reserve expects the U.S. economy to grow about 2.5% in 2016. With the labor market so tormented and distorted, economic growth this year could be non-existent. Maybe that’s what the sell-off in stocks (so far this year) is telling us.